Outlook brightens for drybulk shippers, but fewer left afloat

June 28 The outlook for the drybulk shipping
market is brightening after a stormy four years, but only those
shippers that managed to avoid getting swamped by debt are
poised to take full advantage.

Baltic Trading Ltd, Diana Shipping Inc and
Navios Maritime Holdings Inc are among the handful of
U.S.-listed companies that are still shipshape after an industry
downturn caused by an oversupply of ships in a weak economy.

Several companies have gone under. Most recently, Excel
Maritime Carriers Ltd said it planned to file for
bankruptcy because it could no longer service its debts. Other
casualties have included Britain's oldest shipping firm,
Stephenson Clarke Shipping, and Italy's Deiulemar Shipping.

Baltic Trading, Diana Shipping and Navios navigated the
crisis by either deferring or scrapping plans for new vessels,
sharply cutting costs and keeping debt levels low.

"In a difficult market, such as the one we are operating in
now, (low costs) can be the difference ... and investors are
attuned to the importance," Angeliki Frangou, chief executive
of Greece-based Navios, said in an email.

Navios's operating costs for dry vessels are roughly 25
percent below the industry average, said Frangou, whose company
operates a fleet of 58 drybulk vessels, 40 of them owned.

The Baltic Exchange's main sea freight index, which
tracks freight rates for ships carrying dry bulk commodities
such as coal, iron ore and grain, plunged to a 16-year low of
647 last year, after touching a life-high of 11,793 in 2008.

The index stood at 1,171 points on Friday, up about 65
percent since the start of the year.

The drybulk market is well on track to recover fully next
year, industry analysts and executives say, thanks to a slowdown
in new ship orders and strengthening demand from China, the
largest importer of dry bulk commodities.

Fleet growth, now about 5 percent per year, should slow to
2-3 percent next year, while global drybulk volumes are likely
to grow by at least 6 percent, said Jefferies analyst Douglas
Mavrinac.

"Drybulk shipping demand could only strengthen and it is at
a time when the number of new ships being delivered is slowing
fairly significantly," Mavrinac told Reuters. "Things are
starting to improve slowly but surely."

RUNNING A TIGHT SHIP

Baltic Trading, Diana and Navios are preparing for a
stronger market by using their robust balance sheets to pick up
vessels on the cheap, either from struggling rivals or from
shipyards that have had to cut prices.

The expansion plans contrast with the problems facing
competitors Eagle Bulk Shipping Inc and Genco Shipping
and Trading Ltd. Both have said they could be in breach
of loan covenants by next year.

"We now feel that the time is right to pick up assets, when
others can't," Baltic Trading's chief financial officer, John
Wobensmith, told Reuters. The company has not made any
acquisitions since June 2010.

Sjo named Navios as a top pick among U.S.-listed drybulk
shipping firms. The stock is up 56 percent this year.

As of Thursday's close, the shares of Navios and Diana were
trading roughly 12 percent below the median of all analyst price
targets for the stocks, according to data from Thomson Reuters
StarMine. Baltic Trading was trading at a 26 percent discount.

The combined total debt of Diana, Navios and Baltic was only
about one sixth of the debt held by Dryships Inc as of
the end of March, according to Thomson Reuters data.

Baltic Trading has a small payment of $2 million due in
2015, while Navios does not have any debt maturing before 2017.
Both companies have continued to pay dividends, even through the
downturn, while most of their competitors have stopped.

Diana Shipping, whose shares have risen 34 percent this
year, is the only net-cash company among 35 U.S. marine
companies reviewed, meaning its cash pile exceeds its debt,
according to Thomson Reuters data.

Baltic Trading's Wobensmith said he expected his company,
which operates nine vessels, to grow both "from an acquisition
standpoint and due to the market recovery down the road".

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